LL Flooring (LL) - 2022 Q4 - Annual Report

Sales Performance - Net sales decreased by 3.6% to $1,110.7 million in 2022, with comparable store sales down 5.8$41.6 million (3.6%) to $1,110.7 million in 2022 from$1,152.3 million in 2021, with comparable store net sales decreasing by 5.8%[96] - Net Sales for 2022 decreased to $1,110,679 thousand from$1,152,344 thousand in 2021, a decline of 3.6%[145] - Net Merchandise Sales for 2022 were $957,927 thousand, down 3.6$993,943 thousand in 2021[145] - Net Services Sales for 2022 were $152,752 thousand, down 3.6$158,401 thousand in 2021[145] - Sales mix by major product category in 2022: Manufactured Products (48%, $537.081 million), Solid and Engineered Hardwood (24$261.602 million), Moldings and Accessories (14%, $159.244 million), Installation and Delivery Services (14$152.752 million)[172] Gross Profit and Margin - Gross profit decreased by $38.8 million to$401.2 million, with gross margin declining 210 basis points to 36.1%[87] - Adjusted gross margin (non-GAAP) decreased 140 basis points to 36.2% in 2022[87] - Gross profit decreased by $38.8 million to$401.2 million in 2022, with gross margin decreasing to 36.1% from 38.2% in 2021[97] - Adjusted gross profit (non-GAAP) decreased by $32.2 million to$401.6 million in 2022, with adjusted gross margin decreasing to 36.2% from 37.6% in 2021[97] - Gross Profit for 2022 decreased to $401,163 thousand from$440,042 thousand in 2021, a decline of 8.8%[145] Operating Performance - Operating loss was $11.7 million in 2022, compared to operating income of$52.7 million in 2021[87] - Adjusted operating loss (non-GAAP) was $1.8 million, with adjusted operating margin (non-GAAP) decreasing 490 basis points to (0.2)$11.7 million in 2022, compared to operating income of $52.7 million in 2021[101] - Adjusted operating loss (non-GAAP) was$1.8 million in 2022, with adjusted operating margin decreasing by 490 basis points to (0.2)%[101] - Operating Loss for 2022 was $(11,722) thousand compared to an Operating Income of$52,686 thousand in 2021[145] Net Income and Loss - Net loss was $12.1 million, or$0.42 per diluted share, compared to net income of $41.7 million, or$1.41 per diluted share, in 2021[87] - Net loss was $12.1 million, or$0.42 per diluted share, in 2022 compared to net income of $41.7 million, or$1.41 per diluted share, in 2021[107] - Adjusted loss per diluted share (non-GAAP) was $0.17 in 2022 compared to adjusted earnings per diluted share of$1.39 in 2021[107] - Net Loss Income for 2022 was $(12.1) million, compared to a Net Income of$41.7 million in 2021[108] - Adjusted Loss Earnings for 2022 were $(4.8) million, compared to Adjusted Earnings of$41.1 million in 2021[108] - Net Loss for 2022 was $(12,081) thousand, compared to a Net Income of$41,698 thousand in 2021[145] - Net loss for 2022 was $12.1 million, compared to a net income of$41.7 million in 2021 and $61.4 million in 2020[155] - Net loss for the year ended December 31, 2022 was$12.1 million, compared to net income of $41.7 million in 2021 and$61.4 million in 2020[198] Expenses - Selling, general and administrative (SG&A) expenses increased by $25.5 million to$412.9 million, with SG&A as a percentage of net sales rising 360 basis points to 37.2%[87] - SG&A expenses increased by $25.5 million to$412.9 million in 2022, with SG&A as a percentage of net sales increasing by 360 basis points to 37.2%[99] - Adjusted SG&A (non-GAAP) increased by $23.2 million to$403.3 million in 2022, with adjusted SG&A as a percentage of sales increasing by 330 basis points to 36.3%[99] - Advertising costs in 2022 were $65.4 million, compared to$61.9 million in 2021 and $62.2 million in 2020[175] - Total rent expense for operating leases was$39.5 million in 2022, $37.1 million in 2021, and$36.6 million in 2020[193] Liquidity and Cash Flow - Liquidity decreased by $91.9 million to$135.6 million as of December 31, 2022, primarily due to inventory rebuilding[89] - Cash and cash equivalents as of December 31, 2022, were $10.8 million, with$124.8 million available under the Credit Agreement[109] - Net Cash Used in Operating Activities for 2022 was $(116.7) million, primarily due to inventory rebuilding[112] - Net Cash Provided by Financing Activities in 2022 was$64.3 million, compared to $(104.1) million used in 2021[112] - Cash and Cash Equivalents decreased significantly from$85.189 million in 2021 to $10.8 million in 2022[142] - Net cash used in operating activities was$116.7 million in 2022, compared to $38.7 million provided in 2021[155] - The company borrowed$289.5 million on its credit agreement in 2022, while paying down $217.5 million[155] Inventory - Merchandise Inventories increased by$77.9 million from 2021 to 2022, reaching $332.3 million[112] - Inventory Available for Sale per Store increased to$696 in 2022 from $467 in 2021[113] - Merchandise Inventories increased from$254.385 million in 2021 to $332.296 million in 2022[142] - Merchandise inventories were rebuilt in 2022 after COVID-19 supply chain constraints, with an inventory reserve of$5.5 million at year-end[165] - Inventory obsolescence reserves were $1.6 million in 2022, down from$2.3 million in 2021[155] Credit and Debt - The Company had $72.0 million outstanding under its Revolving Credit Facility with a weighted average interest rate of 5.1$200.0 million, with an option to increase the Revolving Credit Facility to a maximum of $250.0 million, maturing on April 30, 2026[191] - As of December 31, 2022, there was$72.0 million outstanding under the Revolving Credit Facility, with $124.8 million of availability remaining[192] - The weighted average interest rate applicable to the company's Revolving Credit Facility for the twelve months ended December 31, 2022 was 5.1$(1.5 million), compared to $11.1 million in 2021 and$(7.8 million) in 2020[215] - Total Gross Deferred Tax Liabilities decreased to $46.3 million in 2022 from$45.7 million in 2021[218] - Total Gross Deferred Tax Assets increased to $60.0 million in 2022 from$59.4 million in 2021[218] - Net Deferred Tax Asset increased to $13.7 million in 2022 from$11.3 million in 2021[218] - Income tax benefit of $1.5 million reported in 2022, with an effective tax rate of 10.8$11.1 million and an effective rate of 21.0% in 2021[218] - U.S. federal net operating loss recognized as $20.2 million in 2022, compared to no remaining U.S. federal net operating loss carryforward in 2021[218] - State net operating loss carryforwards increased to$37.1 million in 2022 from $18.3 million in 2021, expiring starting in 2025[218] - Income taxes paid (net of refunds) were$4.8 million in 2022, $10.6 million in 2021, and$10.3 million in 2020[218] - Gross unrecognized tax benefits decreased to $0.2 million in 2022 from$0.4 million in 2021[218] Legal and Insurance - Accrual for Legal Matters and Settlements decreased from $33.611 million in 2021 to$22.159 million in 2022[142] - Self-insurance accruals for employee health and workers' compensation claims totaled $3.6 million at the end of 2022[168] - Remaining accrual for Formaldehyde-Abrasion MDL litigation was$9.1 million for vouchers as of December 31, 2022, with $1.6 million of vouchers redeemed during the year[225] - The company recorded$2.5 million from the final settlement of a business interruption insurance claim in 2020[183] Share Repurchase and Equity - The company repurchased 571,332 shares for $7.0 million under the share repurchase program during the second quarter of 2022, with$43.0 million remaining under the authorization[202] - The company repurchased an additional 69,011 shares for $1.0 million outside of the share repurchase program during the twelve months ended December 31, 2022[202] - Total shares authorized for issuance under the equity incentive plan: 7.8 million shares, with 1.5 million shares available for future grants as of December 31, 2022[203] - Deferred stock units outstanding: 244,976 at December 31, 2022, up from 177,448 in 2021[203] - Stock options outstanding as of December 31, 2022: 723,776 shares with a weighted average exercise price of$17.36 and a remaining average contractual term of 6.2 years[206] - Unrecognized compensation cost related to unvested stock options: $1.6 million, expected to be recognized over 2.8 years[206] - Weighted average fair value of stock options granted in 2022:$7.13, compared to $13.30 in 2021 and$6.20 in 2020[206] - Restricted stock awards (RSAs) outstanding as of December 31, 2022: 637,107 shares with a weighted average grant date fair value of $15.68[210] - Unrecognized compensation cost related to unvested restricted shares:$4.6 million, expected to be recognized over 2.3 years[210] - Performance-based RSAs granted in 2022: 94,621 shares with a grant date fair value of $1.5 million[210] Tariffs and Trade - The company reduced the percentage of merchandise receipts subject to Section 301 tariffs to 14$4.2 million in other current assets, $0.2 million in other current liabilities, and$4.1 million in other long-term liabilities[228] - The company recorded net interest income related to antidumping and countervailing duties of $0.1 million for the year ended December 31, 2022 compared to$1.8 million for the year ended December 31, 2021[229] Other Financial Metrics - Total Current Assets remained relatively stable, increasing slightly from $359.828 million in 2021 to$369.748 million in 2022[142] - Operating Lease Right-of-Use Assets increased from $119.510 million in 2021 to$123.172 million in 2022[142] - Total Liabilities increased from $333.771 million in 2021 to$357.872 million in 2022[142] - Retained Earnings decreased from $189.623 million in 2021 to$177.542 million in 2022[142] - Accounts Payable decreased from $63.464 million in 2021 to$47.733 million in 2022[142] - Customer Deposits and Store Credits decreased from $67.063 million in 2021 to$43.767 million in 2022[142] - Customer deposits and store credits ending balance for 2022 was $43.767 million, compared to$67.063 million in 2021 and $61.389 million in 2020[171] - Warranty reserves were$1.0 million in 2022 and $0.9 million in 2021, recorded in cost of sales[174] - Property and equipment net value as of December 31, 2022 was$101.758 million, up from $96.926 million in 2021[189] - Amortization expense for capitalized computer software costs was$4.6 million in 2022, $4.4 million in 2021, and$4.4 million in 2020[189] - The company recorded right-of-use assets of $36.5 million in exchange for lease liabilities related to leases originated or modified during 2022[131] - The weighted average remaining lease term for operating leases as of December 31, 2022 was 4.74 years, with a weighted average discount rate of 5.3$151.7 million, with a present value of $133.7 million[196] - Company matching contributions to the 401(k) plan totaled$3.3 million in both 2022 and 2021, and $3.8 million in 2020[221] Impairment and Other Charges - The company recorded a goodwill impairment charge of$9.7 million in Q4 2022[155][167] - The company recorded a pre-tax, non-cash goodwill impairment charge of $9.7 million ($7.2 million net of tax) during the fourth quarter of 2022[190] - The company closed all Canadian stores in December 2020, resulting in a $0.8 million expense for reclassification of cumulative translation adjustments[184] Comprehensive Income and Equity - Comprehensive Loss for 2022 was$(12,081) thousand, compared to a Comprehensive Income of $41,698 thousand in 2021[148] - Total Stockholders' Equity for 2022 decreased to$256,081 thousand from $272,121 thousand in 2021[151] - Total (loss) income before income taxes in 2022:$(13.5 million), compared to $52.8 million in 2021 and$53.6 million in 2020[212] Legal and Regulatory - The company is subject to claims and disputes arising in the normal course of business, but management does not expect these to have a material adverse effect on the company's results of operations, financial position or liquidity[231]